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Why Web Startups Need To Think small

I’ve been a fan of 37signals ever since I first used Basecamp during my stint at Slideshare in 2007 and later while working on Kwippy. What’s also special about 37signals is that not only they build great products that make money, they are also doing a fabulous job at sharing their experiences and learnings with the community using Social Media long before it was a buzz word. If you haven’t done it already, you should checkout their blog where they talk about design, business and other things.

Sometime back I happened to listen to this talk given by DHH on ‘Making money online’. Despite a cheesy sounding title the talk is a great primer for web entrepreneurs starting up or thinking of starting up. DHH touches upon a great point when he says

The odds of you in here making the next Facebook or YouTube or MySpace are tiny, the odds of you just actually just creating a product that few people will like and pay more for, not that shabby.

It’s kinda like reverse terror alerts, the probability of something like this happening, like the probability of you being crashed in the plane, tiny, but the fear you have of it or the desire you have to be the next Facebook, Huge, because it’s been broadcasted over and over again, you are being brainwashed

DHH further goes down to put forward the maths behind making a million dollars in an year by having 2000 customers and charging them 40$/month. Adding decent conversion rate(5%) to the equation it would take about 40,000 signed up users to get 2000 paid customers. Taking it down one more level to make 200,000$ a year you would need just 400 customers at 40$/month.

The number of problems/niches one can attack trying to get this many customers are a lot, but not surprisingly we still find most web start-ups aiming at building the next Facebook or YouTube. Its not uncommon to find entrepreneurs by the dozen running after VCs and Angels to raise money for the next big thing on the internet despite the fact that most of them can get their venture started without too much money. One of the primary reason for this is the fact that raising million dollars for building(or the mere thought of) a global product that might be used by millions is SEXY however building a web product that’s being used by a few hundred or thousand users while making you some money isn’t.
This frenzy is fueled by media and consumers alike and the entrepreneurs(esp first timers) get unknowingly drawn into this trap and the next thing you know is everyone trying to make it big without even trying to taste success in building a smaller yet useful product.

While I won’t discourage anyone from taking big shots right from the start, I strongly feel its a lot better(and practical) to solve a small problem first before going for the bigger one.